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No Wonder Merkel’s Angry

Posted on: May 16th, 2010

WHAT a great week for Ireland. Our nemesis, the credit rating agencies, are beating a retreat; the British Tories have been forced to form a coalition government; Cameron and Clegg are going to follow us down the road of pain and penance; the two happy UK victors are 18 months behind us. And we know they will not look quite so happy in four weeks.

Not a bad feeling.

The rest of Europe is in the manure business, too. Yippee.

Ten days ago, the euro was on the eve of destruction.
Nothing to do with Ireland — this time. Indeed, we were being held up as the most improved pupil in the bottom class. Portugal, Spain, Italy and Greece were all in the doghouse.

Last Sunday, the mother of all currency attacks was being mounted against the euro.

Then we all woke on Monday to find that the single currency had been saved. A €750bn fund was on the way.

German Chancellor Angela Merkel was seething. On Sunday, she had been clobbered in regional elections for bailing out the Greeks. On Monday, she was bailing out the rest of Europe.

Wild talk in Germany suggested that angry Angela might take Germany out of the euro. The Germans see no reason why they should bust their guts working hard to subsidise lazy Greeks retiring early to drink ouzo ’til they drop.

In Ireland, we are beginning to feel like alcoholics coming out of the horrors while our fellow drunks are just beginning to surrender themselves for treatment.

Ireland is being painted as the model of the reformed dipsomaniac.

Like redeemed sinners, we volunteered to guarantee our share of the €750bn fund being set up to fight the speculators.

Europe is all a bit upside down. First Ireland, the most penniless country on the continent, was helping to bail out Greece, then we jumped in at the deep end to join the much larger rescue of the entire eurozone. Not to mention the insane plan for our renegade bank, Anglo Irish Bank, to borrow bucketfuls to bail out Sean Quinn’s wildcat outfit.

Bravo! The bankrupt leading the bankrupt. We are certainly beginning to feel better.

Finance minister Brian Lenihan’s bullishness and energy are infectious. A recent fistful of good figures on unemployment, retail sales and tax receipts put a spring in the minister’s step. Goodbody Stockbrokers even pronounced Ireland’s recession over. Cameron and Clegg would kill for such optimism.

The good-mood music is not just smugness, because the UK is following in our footsteps. Even socialist Spain resolved to cut civil service salaries by 5 per cent in 2010 and to freeze them for 2011. Spain’s trade unions have started rattling their sabres.

Lenihan should offer to give seminars to the Brits, Greeks, Spanish, Portuguese and to Italy’s Berlusconi about how to tackle out-of-control deficits and to tame trade unions.

He is certainly beginning to hammer the message home in Leinster House.

In the Seanad on Wednesday, the troops were on message. Government speakers were parroting Ahearne.

“We have bottomed out,” they claimed in unison, with all the confidence of the financially illiterate having listened to an economist.

Are they right?

The drip-feed of good news is not yet enough; but the direction of Wednesday’s attacks from the opposition benches indicated that they might be. Fine Gael’s stance in the Dail suggested that their darkest fear could surface: the worst might indeed be over for the economy.

That would never do. The bad economy has been good for the Opposition. Suddenly, they switched tack, giving the distinct impression that they were fed up with the praise landing Lenihan’s way from Europe.

Fine Gael sounded distinctly eurosceptic. They went ape on the floor of the Dail at reports that the Government would allow Europe’s fiscal police to inspect our budget before our TDs got a glimpse of it. Ireland’s control of its own tax regime was under threat. Such a suggestion may offend our national sensitivities, but TDs have no input into the Budget. It is a fait accompli the day it hits the Dail.

Indeed Charlie McCreevy was rumoured not to have even told Taoiseach Bertie Ahern the contents of his first Budget until budget day.

But that was in the glory days. Today we need a bit of humility.

No nation should allow Europe to dictate tax policy, but equally no one can blame them for asking for an early peep at the sums.

Greece fiddled the books and we, in Ireland, broke the rules recklessly. In company with the tipsy club-med countries, we nearly sunk the euro.

Our bankers hurtled us into skid row, but we added to the mess by managing our public finances like drunken sailors.

Ditto the other PIGS countries. We all took our more sober European colleagues for granted. For several years, I have listened to Leinster House spinners whispering that Germany would see us right.

So how can we blame Angela M, the paragon of Germanic sobriety, for seeking a vigilante role?

So far, she is not demanding control or even total abstinence, but is putting pressure on the wayward nations to reduce their intake of the hard stuff. Otherwise, Angela and her equally unamused sister nations could head for the hills or seek expulsions.

Ireland’s recent record merits a period of probation.

Angela Merkel knows that the two mega-funds are fig leaves. They will have little long-term effect. The euphoria that greeted the announcement of the €750bn fund on Monday soon dissipated. After the euro had rocketed to $1.31, it retreated to $1.27 on Tuesday. Twenty-four hours of relief for €750bn.

European governments had been on the run for weeks, fleeing from the speculators who spotted little political will to tackle the deficits. They were moving in to destroy the euro when last weekend’s package was announced.

The nonchalant speculators glanced at the €750bn fund and shrugged. There is no artificial support fund on God’s earth that could defend a full-frontal attack on the euro. The only defence is a Europe of reforming economies bringing their deficits into line — as Ireland is beginning to do.

On the same day, the traders piled in to gold, a hedge not only against ordinary assets but an escape from weak currencies. Gold hit a new high.

On Thursday, the euro fell below $1.26 — a 14-month low. On Friday, it dropped below $1.24. Two fingers to the rescue package.

Markets know that big protection funds are futile, that tough measures in Greece are fine — but that they may never be implemented. The Greeks are on the streets. Athens is a tinder box.

The row over Europe’s desire to influence our Budget has diverted attention from the small shoots of optimism. We are in for more misery, facing a punitive budget in December when Lenihan will slash €3bn from public expenditure.

But do not dismiss the message from all the recent figures. While the banks remain an albatross, the economy is breathing a fraction more freely, albeit in intensive care.